3?S 


UNIVERSITY  OF  ILLINOIS-URBANA 


3  0112  062003667 





i  ILLINOIS 

14 


Railway  Purchases  Measure 
General  Business  Prosperity 


ADDRESS  BY 
E.  B.  LEIGH 

At  the   Annual   Meeting  of  the 
Railway  Business  Association 


December  11,  1913 


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Railway  Purchases  Measure 
General  Business  Prosperity 

Address  by 

E.  B.  Leigh 

President  Chicago  Railway  Equipment  Co. 

Delivered  at  the  Annual  Meeting  of  the  Railway  Business 
Association,  the  national  organization  of  manufacturers 
of  railway  material,  equipment  and  supplies,  at  the 
Waldorf-Astoria  Hotel,  New  York,  Thursday  Morning, 
December  11,  1913  * 


What  is  the  matter  with  general 
business  ?  What  can  be  done  to  restore 
activity?  There  are  conclusive  grounds 
for  believing  that  the  largest  single 
factor  in  the  present  interruption  and 
rapidly  approaching  business  depres- 
sion was  and  is  the  enforced  and  con- 
tinued curtailment  of  railway  pur- 
chases. No  factor  which  could  now 
be  introduced  into  the  situation  would 
do  more  to  stimulate  general  business 
out  of  its  present  and  impending  con- 
dition than  a  vigorous  resumption  of 
railway  expenditures.  This  conclu- 
sion, while  applying  to  the  state  of 
affairs  at  this  moment,  is  based  upon 
a  careful  study  and  comparison  cover- 
ing many  years,  showing  the  relation 
between  railway  purchases  and  gen- 
eral business.  ..      j$ 

STIMULATING  EFFECT  OF  RATE 
ADVANCE 

The  results  of  this  careful  and  de- 
tailed analysis  are  presented  at  this 
time  in  the  hope  that  the  painful  ex- 
perience with  which  the  country  is 
afflicted  and  further  threatened  may 


yield  us  at  least  the  dividend  of  know- 
ledge upon  which  to  base  future 
national  policies.  Indeed,  it  has  an 
immediate  and  urgent  bearing  upon 
a  policy  which  the  government  is  at 
this  moment  engaged  in  formally  con- 
sidering. If  the  conclusions  drawn 
from  past  experience  are  correct,  and 
if  even  the  small  advance  in  freight 
rates  now  asked  for  by  the  Eastern 
railroads  would  enable  and  encourage 
them  and  other  roads  to  make  con- 
siderable outlays  at  once,  such  an  out- 
come would  directly  result  in  a  decided 
restoration  of  general  business  ac- 
tivity. 

REMOVE  ARTIFICIAL  RESTRICTION 

It  is  not  for  a  moment  proposed  that 
railways  shall  be  permitted  advances 
in  rates  in  order  that  unnecessary 
purchases  may  temporarily  benefit  the 
railway  supply  industries  or  even  the 
whole  country.  Waste  never  perma- 
nently benefits  anybody.  It  is  not 
unnecessary  purchases  which  are  under 
discussion.  Railway  facilities  are  in- 
sufficient to  meet  any  considerable  in- 


crease  in  tonnage.  The  proposition  is 
not  to  over-stimulate  but  to  remove 
an  artificial  restriction,  in  the  shape  of 
rates  too  low. 

The  greatest  danger  at  this  moment 
is  delay.  It  is  well  recognized  that 
it  requires  a  greater  force  to  start 
from  inertia  than  to  continue  a  mo- 
mentum already  established.  The 
sooner  the  Commission  can  issue  a 
favorable  decree  the  more  certainly 
will  the  influencing  power  of  railway 
purchases  be  effective  in  the  restora- 
tion of  general  business. 

RAILWAY  PROSPERITY  MEANS 
GENERAL  PROSPERITY 

Not  many  years  ago,  comparatively 
few  business  men,  aside  from  those 
directly  selling  to  the  railways,  realized 
that  railway  prosperity  meant  general 
business  prosperity. 

The  past  few  years,  however,  have 
witnessed  a  steadily  growing  recogni- 
tion of  this  fact  on  the  part  of  busi- 
ness men  generally,  until  to-day  it  is 
substantially  an  accepted  doctrine. 

There  is  wide-spread  confusion, 
however,  as  to  what  constitutes  "rail- 
way prosperity,"  often  the  result  of  the 
popular  error  of  accepting  the  in- 
creased earnings  of  some  particular 
railway,  or  the  naturally  growing  gross 
earnings  of  railways  generally  as  pro- 
claimed by  the  public  press,  as  being 
indicative  of  "railway  prosperity." 
Much  is  now  being  written  regarding 
decreased  net  earnings  and  the  many 
other  evidences  that  the  railways  gen- 
erally are  by  no  means  prosperous  in 
the  true  sense  of  the  word,  or  as 
determined  by  the  true  tests  applicable 
to  all  business  enterprises. 

RAILWAY   PURCHASES    "MEASURE" 
PROSPERITY 

It  is  believed  that  the  watch-word 
"Railway  Prosperity  Means  General 
Business  Prosperity"  should  be 
changed  to  read:  "Railway  Purchases 


Measure     General     Business     Pros- 
perity." 

Inasmuch  as  the  railways  of  this 
country  constitute  its  greatest  industry 
next  to  that  of  agriculture;  with  but 
one  thing  to  sell — transportation:  the 
ultimate  consumers  of  everything  they  \ 
buy:  their  purchases  extending  sub- 
stantially throughout  almost  every  de- 
partment of  business:  many  of  them 
on  n  tremendous  scale, — it  must  be 
obvious  how  potent  a  factor  they  are 
in  general  business  conditions. 

As  the  iron  and  steel  industry  has 
long  been  recognized  as  being  the 
truest  index  of  general  business  con- 
ditions, and  as  the  statement  has  been 
reliably  made  that  the  railways  con- 
sume, directly  and  indirectly,  between 
40%  and  50%  of  the  iron  and  steel 
production  of  the  country,  it  is  mani- 
fest that  the  expansion  or  restriction 
of  railway  consumption  must  vitally 
affect  this  barometer. 

The  ramifications  of  railway  pur- 
chases make  it  impossible  to  classify 
them  in  the  aggregate.  But  few  of 
the  more  important  items,  such  as  rails 
for  example,  are  made  the  subject  of 
public  information  and  statistical  com-  • 
pilation.  However,  the  conditions 
under  which  rail  purchases  are  made 
are  not  believed  to  be  such  as  to  reflect 
the  railways'  prosperity,  or  their  pur- 
chasing ability  in  a  broad  sense. 

EQUIPMENT  PURCHASES  AN  INDEX 

Many  years  of  observation  have  led 
to    the    belief    that    of    those    items 
officially  compiled,  tabulated  and  made 
public,  perhaps  no  one  so  clearly  and 
typically  reflects  the  railways'  general 
purchasing    ability    as    that    of    new  - 
equipment.     When   the  railways   are 
buying  freely  of  new  equipment,  they 
are  generally  likewise  buying   freely  ,* 
of  all  other  articles  essential  to  main-    * 
tenance   and   operation.      Within   the 
past  few  years  the  purchasing  of  new 
equipment  has  had  a  greater  influence 


upon  the  iron  and  steel  industry  be- 
cause of  the  transition  from  wooden  to 
steel  construction. 

One  branch  of  the  speaker's  business 
being  that  of  making  and  supplying  a 
necessary  article  used  on  railway  car 
equipment,  he  has  been  led  to  make  a 
close  study  of  the  effect  of  railway 
purchases  of  new  equipment  upon 
general  business,  and  long  since  be- 
t  came  more  than  convinced  that  there 
was  no  one  more  important  factor  in 
the  development  of  general  business 
activity  than  that  of  the  active  pur- 
chasing of  new  equipment  by  the  rail- 
ways. He  further  fully  believes  that 
railway  equipment  purchases,  with 
naturally  attendant  influence  upon  the 
great  volume  of  other  railway  pur- 
chases, not  only  initiate  general  busi- 
ness prosperity,  but  are  necessary  to 
sustain  such  prosperity. 

RAILWAY  REVIVAL  ANTICIPATES 
GENERAL 

It  has  been  observed  for  many  years 
past  that  the  railway  supply  industry 
has  been  the  first  to  recognize,  and  to 
participate  in,  a  revival  of  general 
business;  likewise  the  first  to  detect 
the  signs  and  feel  the  effects  of  its 
impending  decline. 

It  is  well  known  in  many  quarters 
that  since  1907  railway  purchases  have 
been  affected  (and  in  large  measure 
curtailed)  by  causes  other  than  those 
which  influenced  them  in  preceding 
years, — chief  among  these  being  gov- 
ernmental control  and  restrictions. 

It  has,  however,  become  quite  ap- 
parent that  since  the  year  1907  "rail- 
way purchases"  as  a  factor  in  general 
business  conditions  have  been  evi- 
denced with  increasing  clearness,  and 
brought  into  more  prominent  notice  by 
these  who  attempt  to  follow  the  trend 
of  general  business. 
»  Reviewed  by  years,  and  since  what 
is  known  as  the  "money  panic"  of 
1907,  we  find  the  following  con- 
ditions : 


1908  LEAN  YEAR 

1908:  The  year  1908  was  notably 
the  leanest  of  business  years,  notwith- 
standing bountiful  crops  and  plentiful 
money.  It  was  likewise  the  year  in 
which  the  smallest  number  of  cars 
were  ordered,  namely,  62,999,  and  the 
minimum  of  railway  purchases  made 
for  many  years. 

BEGINNING  OF  REVIVAL 

J  pop:  The  conditions  of  1908  were 
continued  well  into  1909,  but  the  last 
half  of  the  year  witnesses  a  substan- 
tial buying  movement  by  the  railways, 
the  total  cars  ordered  for  the  year 
aggregating  193,874,  nearly  70%  of 
which,  however,  were  ordered  within 
the  last  four  months,  with  particularly 
heavy  orders  in  November  and  De- 
cember. This  gave  a  fairly  good 
business  year,  with  a  heavy  "carry 
over"  to  1910. 

UP  AND  THEN  DOWN  AGAIN 

ipio:  General  business  promptly 
followed,  and  with  the  heavy  "carry 
over"  business  from  1909  referred  to, 
coupled  with  fairly  good  buying  on 
the  part  of  the  railways  during  the 
first  six  months,  made  the  year  1910 
a  still  better  year  than  1909,  although 
the  total  of  car  purchases  was  only 
145,085.  The  falling  off  in  car  orders 
after  the  middle  of  the  year  was  duly 
reflected  in  the  decline  of  business 
until  at  the  end  of  1910  the  proba- 
bilities of  191 1  were  clearly  fore- 
shadowed. 

DEPRESSION  IN  ABSENCE 
OF  BUYING 

ion:  The  decline  in  general  busi- 
ness, together  with  the  falling  off  of 
railway  purchases  continued  through- 
out almost  the  entire  year;  but  at  its 
close  a  buying  movement  on  the  part 
of  the  railways  set  in.  The  total  num- 
ber of  cars  ordered  for  the  year  were 


!35»740,  nearly  30%  of  which  were 
placed  at  the  very  end  of  the  year, 
and  necessarily  carried  forward  into 
1912. 

PURCHASES   OFFSET 
UNCERTAINTIES 

1912:  We  reached  a  high  point  in 
railway  purchases  about  May,  1912, 
continuing  with  normal  purchases  for 
most  of  the  remainder  of  the  year, 
again  reaching  a  high  point  at  the  very 
end  of  the  last  quarter,  the  total  car 
purchases  being  238,400,  the  largest 
number  in  any  year  since  1906.  It  is 
here  significant  to  note  that  the  fore- 
going conditions  in  railway  purchases 
were  followed  by  a  phenomenal  re- 
vival of  general  business  during  the 
last  half  of  1912 ;  this  too  in  the  face 
of  a  national  election  fraught  with 
more  uncertainties  as  to  its  outcome 
than  any  we  have  had  for  years. 
Business  seemed  to  ignore  these  con- 
ditions, however,  while  the  heavy  pur- 
chases made  by  the  railways  filled  the 
steel  mills  of  the  country  with  orders 
toward  the  close  of  the  year,  so  over- 
taxing their  capacity  as  to  compel 
buyers  to  anticipate  deliveries  by 
orders  placed  four,  six  and  even  nine 
months  in  advance  of  shipping  dates, 
— a  condition  heretofore  unprece- 
dented, while  general  business  as- 
sumed almost  the  aspect  of  a  boom. 

PURCHASES  DECLINE,   PROSPERITY 
THREATENED 

ipi 3:  The  heavy  purchases  of  new 
equipment  continued  during  the  first 
three  months,  but  sharply  declined  at 
the  beginning  of  the  second  half  of 
the  year;  almost  immediately  sinking 
to  the  lowest  level  reached  these 
several  years.  It  was  here  that  the 
"danger  signal"  was  set  by  this  ba- 
rometer; but  naturally  general  busi- 
ness did  not  immediately  feel  this  fall- 
ing off  of  railway  purchases  at  the 
time  (because  of  the  accumulations), 


nor  in  fact  until  quite  recently,  being 
sustained  by  the  "unfilled  orders"  on 
hand,  or  what  may  properly  be 
termed  the  "unspent  momentum." 
The  conditions  clearly  foreshadowed 
at  the  middle  of  the  year,  and  ac- 
centuated every  month  since,  are  now  ^ 
upon  us,  and  what  have  we  to  look 
forward  to  after  January  1,  1914  ?  If 
the  railways  do  not  resume  purchas- 
ing on  a  fairly  liberal  scale,  we  are  4 
certainly  facing  a  very  depressed  busi- 
ness situation. 

It  is  believed  that  the  great  major- 
ity of  business  men  have  failed  to 
recognize  the  real  situation,  and  that 
the  now  noticeable  decline  in  business 
is  being  attributed  to  other  causes. 

IMMEDIATE  ADVANCE  MIGHT  HAVE 
AVERTED  DEPRESSION 

Had  the  railways  been  granted  the 
5%  advance  in  freight  rates  which 
they  sought  last  June,  it  would  not 
only  have  restored  great  confidence 
in  railway  credit,  but  would  undoubt- 
edly have  been  followed  by  a  buying 
movement  which,  if  on  but  an  average 
scale  and  within  the  limitations  of 
money  conditions,  would  have  so  far 
reinforced  the  large  volume  of  "un- 
filled tonnage"  as  to  have  obscured 
the  several  now  existing  uncertain 
elements,  just  as  these  same  elements 
(when  in  prospect)  were  practically 
ignored  during  the  latter  part  of  the 
year  1912  and  the  early  part  of  1913. 

The  illustrations  given  above  are 
believed  to  be  sufficiently  significant, 
if  not  conclusive.  They  may  be  car- 
ried back  over  any  number  of  years, 
and  with  the  same  result  shown.  Is 
it  merely  coincidence,  or  is  it  cause 
and  effect? 

PULSE  OF  BUSINESS 

While  financial  or  money  conditions   • 
are  essentially  fundamental  to  "rail-  * 
way  purchases"  as  well  as  to  every 
business  enterprise,  nevertheless,  any- 
thing   which    affects    "railway    pur- 


chases,"  be  it  lack  of  money,  inability 
to  secure  it  on  favorable  terms,  or 
unwillingness  to  use  it,  must  work  to 
the  same  common  result. 

If  the  iron  and  steel  industry,  here- 
tofore broadly  recognized  as  the  great 
barometer  of  general  business  condi- 
tions, and  as  basic  to  them,  is  depend- 
ent upon  "railway  purchases"  to  the 
extent  of  the  absorption  of  40%  to 
50%  of  its  production,  how  much 
more  really  basic  are  "railway  pur- 
chases" as  the  initial  force  in  starting 
and  sustaining  the  circulation  of  gen- 
eral business?  Are  they  not  mani- 
festly the  pulse  of  general  business? 

RAILWAY  BUYING  POWER  AFFECTS 
EVERYBODY 

It  is  confidently  believed  that  the 


sooner  this  country,  as  a  whole,  recog- 
nizes this  basic  relation  of  "Railway 
Purchases,"  the  sooner  we  will  deal 
intelligently  with  this  controlling 
factor. 

In  conclusion  one  prominent  thought 
is  urged,  namely:  that  it  is  not  the 
railway  supply  industry  alone  that  is 
so  vitally  affected  by  "railway  pur- 
chases," as  is  generally  supposed. 
From  its  nature,  the  railway  supply 
industry  is  logically  the  first  to  feel 
their  effects,  but  every  business  in- 
terest, every  business  man,  large  and 
small,  and  all  those  dependent  upon 
them,  are  each  in  turn  affected,  favor- 
ably or  unfavorably,  by  the  relation 
undoubtedly  existing  between  "railway 
purchases"  and  "general  business 
prosperity." 


REQUESTS  FOR  COPIES 
of  this  pamphlet  will  be  welcome  from  all 
those  desiring  to  place  it  in  the  hands  of 
their  representatives  or  friends.  Copies  fur- 
nished or  sent  direct  to  lists  upon  application 
to  Frank  W.  Noxon,  Sec'y.  Railway  Business 
Association,  30  Church  Street,  New  York. 


Form  B133 


0112  062003667 


